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n^lr [COMMITTEE PRINT] 






ELDERLY HOUSING OVERVIEW: 
HUD'S INACTION 



REPORT 

BY THE 

SUBCOMMITTEE OX HOUSING AND CONSUMER 
INTERESTS 

OF THE 

SELECT COMMITTEE OX AGING 

(TOGETHER WITH ADDITIONAL COMMENTS) 

NINETY-FOURTH CONGRESS 

SECOND SESSION 



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MARCH 1976 \^ •. 






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Printed for the use of the Select Committee on Aging 



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WASHINGTON : 1976 



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SELECT COMMITTEE OX AGIXG 

WM. J. RANDALL, Missouri, Chairman 
CLAUDE PEPPER, Florida BOB WILSON, California 

SPARK M. MATSUNAGA, Hawaii WILLIAM C. WAMPLER, Virginia 

EDWARD R. ROYBAL, California JOHN PAUL HAMMERSCHMIDT, Arkansas 

FRED B. ROONEY, Pennsylvania H. JOHN HEINZ III, Pennsylvania 

MARIO BIAGGI, New York WILLIAM S. COHEN, Maine 

WALTER FLOWERS, Alabama RONALD A. SARASIN, Connecticut 

IKE F. ANDREWS, North Carolina WILLIAM F. WALSH, New York 

JOHN L. BURTON, California CHARLES E. GRASSLEY, Iowa 

EDWARD P. BEARD, Rhode Island GILBERT GUDE, Maryland 

MICHAEL T. BLOUIN, Iowa 
DON BONKER, Washington 
THOMAS J. DOWNEY, New York 
JAMES J. FLORIO, New Jersey 
HAROLD E. FORD, Tennessee 
WILLIAM J. HUGHES, New Jersey 
MARILYN LLOYD, Tennessee 
JIM SANTINI, Nevada 
TED RISENHOOVER, Oklahoma 

Robert M. Horner, Staff Director 

Lyle McClain, Counsel 

Albert H. Solomon, Jr., Professional Staff Assistant 

Martha Jane Malonet, Professional Staff Assistant 

V. Bernice King, Financial Secretary 



Subcommittee Membership 

(WM. J. RANDALL, Missouri, Cluiirman of the full committee, and BOB WILSON, 
California, Ranking Minority Memoer, are members of all subcommittees, ex officio.) 

Subcommittee No. 1 — Retirement Income and Employment 
WM. J. RANDALL, Missouri, Chairman 

WALTER FLOWERS, Alabama WILLIAM C. WAMPLER, Virginia 

JOHN L. BURTON, California CHARLES E. GRASSLEY, Iowa 

MICHAEL T. BLOUIN, Iowa GILBERT GUDE, Maryland 

DON BONKER, Washington 
THOMAS J. DOWNEY, New York 

Michael W. Murray, Majority Staff 
Nancy E. Hobbs, Minority Staff 

Subcommittee No. 2 — Health and Long-Term Care 
CLAUDE PEPPER, Florida, Chairman 

IKE F. ANDREWS, North Carolina H. JOHN HEINZ III, Pennsylvania 

EDWARD P. BEARD, Rhode Island WILLIAM S. COHEN, Maine 

JAMES J. FLORIO, Nev* Jersey 
MARILYN LLOYD, Tennease^* 'j 

Rd-B^jy '£. Weiner, Majority Staff 
' r> ~». .^ EmfiJD^ Stern, Minority Staff 

' °* dYgr »-* $ 

Subcommittee Xo. 3— Housing and Consumer Interests 

EDWAR|?5i I £ROYBAL, California, Chairman 

FRED B. ROQNEY, PennsyUfcnkf JOHN PAUL HAMMERSCHMIDT, Arkansas 

HAROLD E. FORD, Tennessee WILLIAM F. WALSH, New York 

JIM SA^{N%/$3w^ ^V 2 * 

^V^v^v^S " Jose S. Garza, Majority Staff 

James H. Petersen, Minority Staff 

Subcommittee Xo. 4 — Federal, State and Community Services 

SPARK M. MATSUNAGA, Hawaii, Chairman 

MARIO BIAGGI, NeAv York BOB WILSON, California 

WILLIAM J. HUGHES, New Jersey RONALD A. SARASIN, Connecticut 

TED RISENHOOVER, Oklahoma 

Edward F. Howard, Majority Staff 

Robetta Bretsch, Minority Staff 
(II) 



FOREWORD 

The subcommittee, through field hearings, discovered that many of 
the elderly, small nonprofit groups, and developers did not understand 
section 8 and section 202. A frequent request was made for a simplified 
explanation of the two programs. Others who understood the pro- 
grams provided us with information on the inadequacies of both sec- 
tion 8 and section 202. For these reasons, and because of the newness 
of the two housing programs, we were compelled to conduct a descrip- 
tive study. 

The report describes the operations and functions of section 8 and 
section 202 and the Department of Housing and Urban Development's 
efforts in implementing them. In addition, the data collected was ana- 
lyzed and used to evaluate both programs. Further, the report pre- 
sents recommendations for improving each of these housing programs. 

This report is a tool to explain the programs to laymen, to point out 
the programs deficiencies, and to establish a foundation for the sub- 
committee's continuing oversight of the Department of Housing and 
Urban Development. 

Edward R. Roybal, 
Chairman, Subcommittee on Housing and Consumer Interests, 
Select Committee on Aging. 

(ni) 



CONTENTS 



Page 

Foreword in 

Introduction 1 

Section 8: Housing assistance payments program 2 

Background 2 

The mechanics of the section 8 program 3 

Evaluation and findings 5 

Statistical analysis 5 

Regulations and program administration 6 

The financial community's response 9 

Summary 11 

Recommendations 12 

Section 202 : Housing for the elderly and handicapped 14 

Background 14 

Section 202's reinstatement 14 

Purpose and eligibility 15 

Funding requirements 15 

Fund reservation request 15 

Development and submission of preliminary proposal 16 

Final proposal 17 

Completion of the project . 18 

Allocations 18 

Preliminary application screening 18 

Regional and State applications and units — Table I 10 

Tentative allocations of section 202 — Table II 21 

Criteria for allocations 22 

Evaluation committee 22 

Formal selection committee 22 

Evaluation and findings 23 

Recommendations 24 

Additional comments : Representative Don Bonker 25 

(v) 



Digitized by the Internet Archive 
in 2013 



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ELDERLY HOUSING OVERVIEW: HUD'S INACTION 
INTRODUCTION 

The issue of housing for older people is more than providing a roof 
over their heads. We need to address the concept of home. The details 
of what constitutes a home are different for each person. The place 
where one lives, however, is closely associated with who one is and 
how one expresses this sense of self. Quick judgments about what 
home means to people and what kinds of housing would be appro- 
priate cannot be made. 1 The Older Americans Act of 1965 states that 
older people are entitled to suitable housing independently selected, 
designed and located with reference to their special needs, and avail- 
able at costs they can afford. Particularly for the elderly, housing is 
more than shelter alone. 

The following questions need to be considered when attempting to 
meet the challenges of providing a decent physical structure which the 
elderly can afford : 

First. How can housing choices be provided to meet individual 
needs? 

Second. What can be done to help the elderly remain in their homes 
if they wish to and are able to do so ? 

Third. When should a move be considered ? 

Fourth. Who makes the decision ? 

Fifth. What if the older person refuses to move ? 

According to the 1970 census, there were 27,495,602 people 60 years 
of age or older living in the United States, representing 14 percent of 
the total population. These older Americans represent 27 percent of 
all the households in the country. 

Sixty-nine percent of all older Americans own their homes. How- 
ever, 54 percent of these homes were built before 1940, indicating that 
they are at least 36 years old. The median value of these homes is 
Si 3,400 for all older Americans. However, the median value of older 
black homes is $8,000 and those of older Spanish-speaking families 
are valued at $10,700. These figures can be misleading since 13 percent 
of the elderly homeowners have a net equitv of between $1,000 and 
$4,999; 26 percent have between $5,000 and $9,999, and altogether, 
48 percent have a net equity of less than $25,000. 2 

The elderly are handicapped by limited and usually fixed incomes. 
While the median income for all American families of all ages was 
$9,867 in 1970, the median income for families over 65 was $5,053. 
Black older families showed an annual income of only $3,282. and 
the figure was $3,756 for older Spanish-speaking families. It should 
be understood that these are median figures. Realistically, approxi- 
mately 50 percent of the elderly are poor, having annual incomes of 

1 Robert N. Butler. M.D., "Why Survive? Being Old in America," 102 (1975). 

2 See "Why Survive?" supra at 109. 

(1) 



less than $3,000, and half of these support families on less than $1,000 
a year. 3 

Home ownership for the elderly does not assure them of the privi- 
leges associated with owning a home ; that is, low housing costs in rela- 
tion to income, substantial equity, and monetary resources if they 
desire to move to a new location. In addition, it does not assure them 
of living in safe and adequate housing. The 1970 census did not col- 
lect data on substandard housing. The 1960 census statistics, however, 
can be used to make projections for 1976. The 1960 census showed 
that about 30 percent of the elderly lived in substandard housing. 
Therefore, if the 30-percent estimate is retained, it can be calculated 
that in 1976 there will be about 8.3 million elderly people living in 
approximately 3.7 million housing units which are dilapidated, deteri- 
orating, or lacking some facilities. 

The elderly persons home was purchased 36-40 years ago and has 
usually physically deteriorated. The costs for repairs, maintenance, 
and utilities have risen so dramatically that the older person cannot 
pay for them. In addition, the property tax as a percent of a family 
income is a little over twice as high for the elderly household than for 
the typical household. 4 Many of the elderly are trapped in their homes, 
unable to find available or alternative living arrangements at reason- 
able prices in a suitable locale. 

The elderly renter is faced with steadily rising rents. The accepted 
proportion of 25 percent of the total income for rent is not holding for 
the older person. Elderly renters are paying anywhere from 35 to 75 
percent of their income for rent. "Many of the elderly spend consider- 
ably more than the accepted proportion of 25 percent of total income 
for rent; in many cases, upward of 35 percent." 5 A survey conducted 
in Xevacla shows that some of the elderly in that State are having 
to spend as much as 50 to 75 percent of their income for rent. Some 
elderly people in south-central Los Angeles on fixed incomes of $250 a 
month are paying $125 to $150 a month for rent. These outrageous 
rents are the standard for the elderly throughout the country. 

The White House Conference on Aging lias recognized that : "Ade- 
quate housing is essential to the happiness, health and welfare of 
the aging citizen, and, hence to the welfare of the Nation as a whole." 

The alternatives and the number of housing units available to the 
elderly at a reasonable cost remain scant. Two Federal housing pro- 
grams which could conceivably begin meeting some of the need are 
section 8 and section 202. This report describes, examines, and evaluates 
these two programs. 

SECTION 8 : HOUSING ASSISTANCE PAYMENTS 

PKOGKAM 

Background 

The section 8 program of housing assistance payments was author- 
ized on August 22, 1974, as part of the Housing and Community De- 

3 National Center for Housing Management, Inc., "The Onsite Housing Managers 
Resource Book — Housing for the Elderly," 2-2 (1974). 

4 See p. 3 of hearing, "Problems of the Elderly in Los Angeles, Calif." held before the 
Subcommittee on Housing and Consumer Interests of the House Select Committee on 
Aging, Oct. 24-25, 197. r >. 

5 See "Problems of the Elderly in Los Angeles, Calif.," supra at 129. 



velopment Act of 1974 to assist lower income families in obtaining and 
paying for decent, safe, and sanitary housing. 

The program attempts, in part, to fill the void in federally assisted 
housing created by the housing moratorium of January 1973. It differs 
from the section 202 program in that it provides no direct funding to 
the developer. Instead, it offers a means of paying the monthly rent 
of lower income families, thus, hopefully, inducing or encouraging 
developers, builders, and lending institutions to work together to pro- 
vide decent housing for needy families through the medium of guaran- 
teed monthly rental payments. 

The Department of Housing and Urban Development (HUD), 
which administers the program, has hailed it as the primary solution 
to the housing needs of lower income families, particularly the elderly, 
as well as a stimulant to the almost dormant homebuilding industr}^. 

According to HUD, "the problems of aging and particularly the 
housing needs of the elderly are continual concerns of the department. 
The new section 8 program provides assistance to encourage the con- 
struction of new units, the substantial rehabilitation of substandard 
housing and the use of standard existing units. It encourages the par- 
ticipation of both private developers and housing agencies." 6 

Thus, HUD's intent in developing the program is made abundantly 
clear. The interest on the part of developers of elderly housing is mani- 
fested by the number of applications submitted to HUD. Out of a total 
of 207,057 section 8 applications received by HUD, 88.539 were for 
units for the elderly. 7 

The Mechanics or the Section 8 Program 

The basic concept of the program is that HUD will provide housing 
assistance payments on behalf of eligible lower income families — that 
is, families whose income does not exceed 80 percent of median income 
for the locality — occupying newty constructed, substantially rehabili- 
tated, or existing housing. This payment will make up the difference 
between the approved rent for the unit and 25 percent of the family's 
adjusted monthly income. In the case of very low income families — 
that is, families whose income does not exceed 50 percent of median 
income for the locality — the family's contribution is 15 percent of its 
adjusted monthly income. 

Housing projects may be owned by private parties, both profit- 
motivated and nonprofit and by public housing agencies. Owners sub- 
mit development proposals in response to HUD published invitations. 
If both the preliminary and final proposals are acceptable to HUD, 
the agency will enter into an agreement that upon completion of the 
project, it will enter into a housing assistance payments contract with 
the owner for a specified term. Under the agreement, HUD will make 
housing assistance payments with respect to units occupied by eligible 
families. The maximum term of the contract is 20 years except in 
the case of a project owned by, or financed by, a loan, or a loan 
guarantee from a State or local housing agency, in which case the 
term may be up to 40 years. 

6 See p. 3 of hearing: "HUD's Response to the Housing Needs of Senior Citizens." held 
l.pfore the Subcommittee on Housing and Consumer Interests of the House Select Committee 
on .A sing, Sept. 25, 1975. 

7 See p. 2 of the information bulletin. "Summary Activity Status (Region and U.S.) by 
Selected Development Stages," prepared by HUD, Dec. 26, 1975. 

G9-662— 76 2 



Any type of financing may be used including HUD-Federal Hous- 
ing Administration (HUD-FHA) mortgage insurance programs, con- 
ventional financing and tax-exempt bonds or other obligations. If the 
housing assistance paj-ment contract is pledged as security for any 
loan or obligation, the financing must be approved by HUD. 

The rents approved under the contract may not exceed the HUD 
established fair market rents (FMR) for new construction for the 
housing market area in which the project will be located and must be 
reasonable in relation to the quality, location, amenities, methods and 
terms of financing, and the management and maintenance services of 
the project. The HUD field office director may determine that special 
circumstances warrant an increase of up to 10 percent above FMR. 
and the assistant secretary for housing production and mortgage 
credit may authorize that the FMR be increased up to 20 percent If 
special circumstances so warrant in his judgment. 

The assistance contract provides for annual adjustments in the 
FMR to reflect changes in fair market rentals for similar type housing 
units in the same market area. Special additional adjustments may be 
approved to reflect the actual expenses of owning and maintaining 
the project which have resulted from substantial general increases 
in real property taxes, utility rates, or similar costs, but only to the 
extent that such general increases are not compensated for in the 
regular annual adjustments. 

The owner is responsible for the performance of all maintenance 
and management functions, including taking applications, selection 
of families, collection of rents, termination of tenancies, reexamination 
of family income, and compliance with equal opportunity require- 
ments. In connection with the selection of families, the owner is re- 
sponsible for leasing at least 30 percent of the subsidized units to very 
low-income families^ 

The owner may contract with another party to perform these man- 
agement services, but in doing so he is still responsible. However, 
no entity which is responsible for administering the contract, such as 
a Public Housing Authority (PHA) in the case of a private owner/ 
PHA project, may contract to perform such services. 

Private owners of existing housing may also participate in the 
section 8 program by leasing existing decent, safe, and sanitary hous- 
ing to lower income families. Under this program, a family which is 
determined to be eligible by the PHA will be given a certificate of 
family participation. The family may find a suitable unit anywhere 
within the operational jurisdiction of the PHA. If the owner of the 
unit is willing to lease it. and it is determined to be in decent, safe, and 
sanitary condition and if the rent is within the FMR established by 
HUD for existing housing, a lease may be executed between the owner 
and the family. Then a housing assistance payments contract will be 
executed between the owner and the PHA. This contract will guar- 
antee a monthly payment to the owner to make up the difference 
between the rent payable by the family and the FMR for the unit. 

A separate set of regulations has been developed for State housing 
finance agencies (HFA's) now operating in 32 States. Most of these 
HFA's provide low interest rate financing to private developers of 



>w : and moderate-income housing. These regulations permit qualified 
[FA's to receive "set asides" — earmarkings of section 8 contract 



to 
HFA' 

authority which the HFA is permitted to "allocate according to its 
own housing program. Agencies which provide financing without 
Federal mortgage insurance are permitted greater freedom in admin- 
istering their particular program. The section 8 subsidy payments, 
with respect to an HFA financed project, are computed and dispensed 
in the same manner as the basic program. As previously stated, the 
term of the housing assistance payments contract for an HFA financed 
project is 40 years. 

There is a provision in the program for HUD to subsidize section 8 
units which are unoccupied for a period not to exceed 60 days at 
80 percent of the established rent. 

Another provision states that proposed housing projects setting 
aside only 20 percent of the total number of units for section 8 occu- 
pancy will receive priority over projects setting aside a larger pro- 
portion of section 8 units. Housing projects for the elderly will receive 
equal priority with the 20 percent section 8 projects even if the elderly 
projects anticipate 100 percent occupancy by section 8 tenants. 

The preceding has been a description of the way the program works, 
and as a member of the HUD Boston regional office has stated, it is 
"the most complicated program that HUD has ever invented." 8 

Evaluation and Findings 

statistical analysis 

The greatest single difficulty in attempting to evaluate the effective- 
ness of the section 8 program has been the virtual vacuum of statisti- 
cal data eminating from HUD. 

On November 14, 1975, a member of the subcommittee staff wrote 
to the Director of Management Information Systems of HUD re- 
questing a list of counties, cities, or standard metropolitan statistical 
areas that had section 8 units under construction. 9 

After waiting over a month for a reply, the subcommittee con- 
tacted the HUD official by telephone and was told that the letter had 
been misplaced. Information was provided the following day indicat- 
ing that 216 units had broken ground in Wisconsin; 50 in Maine: 
118 in Tennessee; 195 in Ohio and 523 in Illinois, for a total of 
1,102 units. 

The subcommittee then contacted the appropriate HUD area offices 
to get the names of the developers of each project so they could be 
contacted for a status report. Only in Maine and in Tennessee did 
the area office even know the name of the developers, and the subcom- 
mittee could only confirm that 168 units were, in fact, under 
construction. 

On January 21, 1976, a member of the staff wrote to the assistant 
secretary, Programs for the Elderly and Handicapped of HUD. re- 
questing a list of section 8 projects in the country including their 

8 Lee Dennison, as quoted In the November-December issue of The Older American, 
Boston, Mass. 

9 Letter from Jose S. Garza to Donald Demitros, Director, Management Systems of HUD, 
dated Nov. 14, 1975. 



6 

addresses, as well as any other information HUD could provide that 
would help in the preparation of this report. 10 

On February 10, 1976, the assistant secretary was contacted by 
telephone and reported that she had not received the letter. A copy of 
the letter was sent to her the same day. On February .18, 1976, the 
subcommittee finally received statistical data on the status of the 
section S program as of December 26, 1975. 

The report indicated that while applications for 207,057 units had 
been received, only 1.471 units were under construction. This figure 
included both new and substantially rehabilitated units. A "good 
many'' of the units under construction were conversions of former 
section 23 units which had been formally approved for that phased- 
out program and had simply been shifted to section 8. 11 Thus, a sub- 
stantial number of units listed as being under construction were not 
generated by the new section 8 program but were merely a vestige of 
the old section 23 plan. 

The data also revealed that there were only two projects in the 
Xation, containing an aggregate of 279 units, which were completed 
and ready for habitation. Both were rehabilitation projects, and not 
new construction. The larger of the two projects (249 units) was a 
conversion from section 23. Thus, in the entire country only 30 
"pure" section 8 units have been completed and are ready to be 
occupied. 

The report received represented a fairly complete analysis of the 
section 8 program by regions. Hopefully, this is an indication that 
HUD will be making information more readily available. It did not, 
however, give any indication of the number of existing units occupied 
by section 8 applicants. 

The major thrust of the program as originally conceived was in the 
direction of newly constructed or substantially rehabilitated units. If 
the program is operable at all, it may be in the area of existing units, 
but the subcommittee was unable to verify this fact. 

To reiterate, as of December 26, 1975, applications had been received 
for 207.057 units to be built or substantially rehabilitated. Of this 
number only 1,471 units were under construction and merely 279 com- 
pleted. The number of completed units had not changed as of Febru- 
ary 1. 1976. 

REGULATIONS AND PROGRAM ADMINISTRATION 

The section S program hailed by HUD as the principal mechanism 
for providing decent housing for lower income Americans, as well as 
a means of stimulating the dormant home building industry, has done 
neither. The program, as presently conceived and administered, is not 
working. It is not producing enough new or substantially rehabilitated 
units. In addition, it does not provide a mechanism to assist the elderly 
in shopping for existing units which will meet HUD standards of 
acceptability. 

Due to limited mobility, many older people find it difficult to locate 
existing housing on their own. After locating an acceptable unit, they 

10 Letter from Jose S. Garza to Helen F. Holt, assistant secretary, Programs for the 
Elderly and Handicapped, HUD, dated Jan. 21, 1976. 

u Telephone interview with Fred Dow, branch chief, Tublic Housing Systems, HUD, 
Washington, D.C., Feb. IS, 197G. 



must convince the landlord to accept a two-part pa} T ment — part from 
the tenant and part from the local housing authority. Prospective land- 
lords, weary of the paper work involved and being reluctant to rent 
to low-income people, frequently rent the unit to someone else. Also,, 
experience has indicated that fair market rentals have been set so low 
that landlords refuse to rent the unit for the established ceiling. 

An additional problem facing the elderly in need of decent housing 
is the insufficient number of units allocated to each area. In Los 
Angeles, for example, with approximately 30,000 eligible elderly ap- 
plicants, only 1,120 units have been specifically set aside for older 
persons. 12 

In addition, the authorized section 8 funds were divided evenly 
between the 15 councilmanic districts without regard to the needs of 
each district. 

In Nevada, only $157,000 were allocated for the entire State and 
all of these moneys are to be used to rent existing structures. There 
are presently 64,500 older people living in the State, 7,000 of whom 
would probably admit to not having enough money to live on. 13 Di- 
viding 7,000 needy older people into $157,000 yields a per person 
allowance of less than $23 per year which would hardly be enough 
to pay the utility bill for 1 month. It must be remembered, however, 
that Nevada's allocation must be used for all low-income families — 
not just the elderly. Even these limited funds will probably not be used 
in Nevada, due to a shortage of existing housing which will meet 
HUD's minimal standards. 

One witness testified in the Carson City, Nev., hearing of this sub- 
committee that some older Nevadans were living in "chicken coops 
with dirt floors" due to the shortage of acceptable and affordable 
housing. 14 

On the surface, it would appear that existing housing would supply 
the most immediate solution to the elderly seeking relief under the 
provisions of the section 8 program, but existing acceptable hous- 
ing is in very short supply. As a result, landlords pick and choose 
tenants and they give preference to those not using section 8 assist- 
ance. Even with all of its problems, traveling the "existing housing" 
route probably offers a more viable alternative to older Americans in 
need of housing than waiting for new or substantially rehabilitated 
housing units to appear. 

As the previously cited statistics indicate, the section 8 pipeline is 
bulging at one end with over 200,000 applications for new or sub- 
stantially rehabilitated housing units, but it is reduced to less than 
a trickle at the other end with less than 300 units ready for habita- 
tion, only 30 of which resulted from the new section 8 program. 

In searching for the causes for the lack of building activity in re- 
sponse to the Government's offer of guaranteed rental assistance pay- 
ments, the subcommittee interviewed developers, members of State 
HFA's and HUD field and area representatives, as well as HUD 
staff in Washington. 



12 See "Problems of the Elderly in Los Angeles, Calif.," supra at 3. 

13 See p. 3 of hearing, "Problems of the Elderly in Nevada : Part I," held before the 
Subcommittee on Housing and Consumer Interests of the House Select Committee on 
Aging, Oct. 10, 1975. 

14 See "Problems of the Elderly in Nevada : Part I," supra at 30. 



8 

■* 

There appears to be a general consensus that the regulations and 
application and approval processes are far too cumbersome to com- 
prehend and administer. This view is held not only by developers 
and builders, but is shared by representatives of HUD as well. 

The subcommittee was advised by a HUD representative in Xew 
Hampshire that regulations are far too difficult for the smaller de- 
veloper to understand. 15 He also stated that the amount of paperwork 
required of the HUD field offices is monumental. In prior housing 
programs, local housing authorities processed the applications. This 
is now clone by the field offices and they simply do not have the per- 
son-power to keep up with the demand. 

This opinion was reinforced by an architect from Long Island, 
X.Y., who told the subcommittee that in August 1975, as required, 
he submitted the final proposal for a section 8 project. Other devel- 
opers in the area also submitted proposals. As of February 1, 1976, 
not one developer had received word on its application. Such delays 
in the HUD field offices are not uncommon. 

The regulations themselves also cause delays and discourage pros- 
pective developers. "The requirement for public advertising is caus- 
ing long delays in many communities, as the area offices grapple with 
the problem of determining appropriate markets and of scheduling 
dates for advertising in localities throughout their area. Part of the 
delay in scheduling of the advertising arises from the area offices 
postponing advertising until a housing assistance plan is received 
from a community. The whole concept of housing assistance plans 
should, in our judgment, be reevaluated to determine whether it is a 
relevant planning tool or just a bureaucratic impediment which is 
preventing builders from meeting the legitimate housing needs of a 
community." 16 

The section 8 regulations require adherence to the Davis-Bacon 
Act. The Department of Labor's interpretation of this act is causing 
problems for builders and developers. The regulations state that "not 
less than the wages prevailing in the locality as predetermined by the 
Secretary of Labor pursuant to the Davis-Bacon Act shall be paid to 
all laborers and mechanics employed in the development of the proj- 
ect involved." 17 

Prevailing wages should always be paid, but the interpretation of 
"prevailing wages" seems to be creating problems. 

There is evidence that several sponsors of section 8 housing proj- 
ects for the elderly have been assigned rates under the Davis-Bacon 
Act which are excessive compared to wages being paid for non- 
federally assisted projects in the immediate vicinity. 

A sponsor of a religiously affiliated section 8 project for the elderly 
in suburban Washington, D.C. reported that the Davis-Bacon rate 
assigned to him for laborers was $7.23 an hour. A survey revealed that 
five similar nonfederally assisted projects withirrthe same county were 
paying an average of only $4 an hour for laborers. His construction 
costs are $500,000 higher than they would have been had he been free 

13 Telephone interview with Paul Stewart, Multi-Family Housing Representative, HUD 
area office, Manchester, N.H., Feb. 17. 1976. 

1(5 See p. 11 of hearing, "Oversight of Section 8 Housing Assistance Program," before 
the Subcommittee on Housing and Community Development of the House Committee on 
Banking, Currency and Housing. Oct. 22, 1975. 

17 Section 12 of Housing and Community Development Act of 1974, 42 U.S.C. § 5301. 



9 

of the Davis-Bacon Act or if the act had been implemented or inter- 
preted properly. He appealed his assignment of wages and while some 
of his wages were reduced, the delay caused by the appeal con- 
sumed any savings that may have been effected by it. 18 

A representative of the Maine State Housing Authority reported 
that wages assigned under the Davis-Bacon Act for four projects in 
the State of Maine were far in excess of the rates paid by nonfederally 
assisted projects in the same vicinity. For example, carpenters were 
being paid from $3.50-$4.50 per hour locally. He, however, was re- 
quired to pay $7.60 an hour because of the way the Davis-Bacon clause 
was implemented. For laborers, he was assigned a rate of $6.20 an hour 
as opposed to local rates of $3.50 per hour; for plumbers, he was re- 
quired to pay $8.70 when the local rate was $4.75 ; he had to pay $8.05 
an hour for masons while other local masons were earning $4.00 an 
hour. His projects in rural Maine were assigned rates that were being 
paid in Metropolitan Boston, 19 

In addition to the inequity in rates suffered due to the improper 
interpretation of the Davis-Bacon Act, there is the further burden of 
excessive amounts of paperwork. 

Small builders have neither the manpower nor the expertise to deal 
with all of the administrative minutia required in the Davis-Bacon 
Act. 

By offering only rental assistance payments, Section 8 was designed 
to work in the open marketplace. Unreasonable impediments, however, 
such as the unfair interpretation and implementation of the Davis- 
Bacon Act, cause builders and developers undue hardships, particu- 
larly in the non-metropolitan areas. 

If Section 8 was conceived to offer an incentive to private and non- 
profit sponsors to create new housing units for the poor and elderly, 
then the program must have room to breathe. The unreasonable im- 
plementation of reasonable regulations can be just as much a prob- 
lem as overly restrictive regulations. 



The financial community has shown very little interest in financing 
section 8 projects. The program offers little incentive to lending or- 
ganizations because the only security offered the lender is a guaranteed 
monthly payment in an amount equal to the difference between 25 per- 
cent of the family's monthly income and the fair market rent estab- 
lished for the unit for a period not to exceed 20 years, as long as the 
owner is diligent in keeping the unit occupied by an approved appli- 
cant. Should the unit, for any reason, become vacant, HUD will pay 
only 80 percent of the rent for only 60 days. 

It will also be recalled that projects which include only 20 percent 
of the units for section 8 occupancy will receive a higher priority than 
developments planning a higher percentage of section 8 units. [Hous- 
ing for the elderly is exempted from this priority system.] As a result, 



13 Telephone interview with Samuel Roberts, executive director, Hebrew Home of Greater 
Washington, Mar. 19, 1976. 

19 Telephone interview with Bruce Rothenberg, Maine State Housing Authority, Mar. 15. 
1976. 



10 

the most security a lender can receive under the program, according 
to the established priorities, is a 60-day guarantee of 80 percent of the 
rent for 20 percent of the total units. Even if the landlord keeps his 
section 8 units occupied at all times, the maximum term of his contract 
is 20 years unless he is financed by a State HFA. Most mortgages, 
however, run for 40 years. 

One obvious solution to this dilemma would be for the prospective 
developer to go to his local State HFA and let it finance the project. 
The problem is that the State agencies are having as much difficulty 
with their financing as the independent developer. 

John M. McCoy, Jr., executive director of the Pennsylvania Housing 
Finance Agency, testified in behalf of 35 State HFA's before the Sub- 
committee on Housing and Community Development of the House 
Committee on Banking, Currency and Housing as follows : 

I must report today that most of our member agencies have grave 
doubts at this time whether we can raise, in today's market, the $2.5 
billion necessary to finance the 100,000 contemplated State agency 
funded units. The reason is very simple Lenders, in our case, the insti- 
tutional and individual purchasers of municipal bonds, are concerned 
over the lack of security behind the instruments that finance the sec- 
tion 8 projects. This fear, coupled with the general turmoil of the 
municipal bond market, lias virtually closed our financing channels. 20 
There are several steps which HUD can take to open up these 
financing channels. The 60-day subsidy on unoccupied units could be 
extended beyond that period in an amount sufficient to amortize the 
principal and pay the interest on the unit, so long as the owner is acting 
in good faith to rent the unit. This, in part would help allay the fear 
of lenders that there is no security behind their loan to a section 8 
project because of the lack of an assured income stream on vacant 
units covering principal and interest. 

Payment of only that portion of the rent to serve the debt on un- 
occupied units would hardly provide sufficient incentive for the owner 
to allow the unit to remain vacant instead of searching diligently for a 
new section 8 tenant. With waiting periods of 18 to 2-4 months for 
decent housing the norm, his search for a suitable tenant should be 
relatively brief : in all probability, it would not exceed 60 days. 

This change in the regulations would make the program much more 
acceptable to lenders and would probably not involve any more ex- 
pense to the government as it does not provide an incentive to the 
owner to keep the unit vacant. Why would he be content receiving 50 
percent of the established rent (the approximate amount required to 
serve the debt) from the government when he can rent the unit for 
100 percent of the established rent by simply finding a tenant \ 

Another step that could be taken to encourage lenders to provide 
loans to private developers and nonprofit sponsors would be the ex- 
tension of the housing assistance payments contracts from 20 to 40 
years. The 20-year limitation places a heavy burden on the individual 
developer who tries to finance his project independently, rather than 
through a State HFA. The present regulations give the HFA's an un- 
fair advantage over private entrepreneurs and nonprofit organizations 
by granting 40-year contracts to the former and only 20-year contracts 
to the latter. 



20 See "Oversight of Section 8 Housing Assistance Program," supra, at 30. 



11 

In an attempt to provide further security to lending agencies, some 
state HFA's and other lenders are exploring the possibility of utilizing 
the coinsurance authority set forth in section 244 of the Housing and 
Community Development Act of 1974. The coinsurance could be shared 
by the Federal Government, state HFA's and private mortgagees. 21 

There may also be a role for private mortgage insurors in assuming 
a portion of the risk on behalf of the state agency or private mort- 
gagee. What is called for is creativity and flexibility in designing 
Federal- State-private risk sharing packages designed to meet the 
requirements of each particular situation. 22 

Section 244 contains a restriction that no more than 20 percent of 
the multifamily insurance written annually by HUD can be under 
the coinsurance program. The reason for this limitation was to prevent 
HUD from imposing coinsurance on mortgage lenders who were not 
willing to participate in the program. Assuming successful use of 
section 244 coinsurance for section 8 projects, it will probably be 
necessary to eliminate the present restriction of 20 percent of all FHA- 
insured multifamily mortgages originated each year. This should be 
fairly simple for HUD to accomplish and would offer a great deal of 
encouragement to lenders. 

Under the coinsurance program, state agencies and the private sec- 
tor as well as HUD-FHA, would bear the risk on any insured loan 
that defaulted. Since insurance premiums would be paid to the Fed- 
eral Housing Administration, we do not envision this program as one 
costing Federal dollars. 

Congress has recognized that long-term financing is critically short 
in rural areas and has permitted the Farmers Home Administration — 
FmHA — section 515 rural rental program to be used as a long-term 
financing vehicle for the section 8 program. Twenty percent of section 
8 funds have been set aside for nonmetropolitan areas, generating a 
great deal of interest on the part of rural Americans in having these 
two programs work together. The use of section 515 in combination 
with section 8, however, is moving very slowly. 

As of February 17, 1976, applications for approximately 70 projects 
under section 515 and section 8 had been submitted for FmHA and 
HUD approval. Fourteen of these projects had been approved by 
FmHA field offices and were waiting for a firm rental agreement from 
HUD. FmHA and HUD have discussed bringing in a task force of 
FmHA field people and staff from HUD's issuing offices to determine 
why HUD approvals were taking so long. 23 

SUMMARY 

The following excerpt from a letter to the chairman of the subcom- 
mittee sums up the problems with the program : 

The first months of experience under the new construction 
program (section 8) have clearly demonstrated that the pres- 
ent regulations make it inf easible except in the most unusual 
circumstances unless it is tied to 202, 515, or FHA financing. 
Unfortunately the revised 202 program is extremely small, 

21 See "Oversight of Housing Assistance Program," supra, at 3. 

22 See "Oversight of Housing Assistance Program," supra, at 8. 

23 Telephone interview with George Daellenbach. loan specialist, FmHA, Washington, 
D.C., Feb. 17, 197«. 



12 

the 515 program is not yet actually working in tandem with 
section 8, and the HFA ; s problem with bonding dictates an 
extremely conservative course. Without additional sources of 
financing, there is no program to evaluate. 

The inadequacy of fair market rents in several jurisdic- 
tions is undoubtedly well known to you and your committee. 
They compound the difficulty of developing feasible projects 
and must be corrected if the program is to move. 

We are also very concerned about the advertising and bid- 
ding procedure and its effect on nonprofits. The procedure 
discriminates against nonprofits and favors major developers 
for it gives little time and no resources to bidders, effectively 
limiting participation to sponsors who have site control, a 
development team, plans, financial analyses, and financing in 
hand at the time of advertising. Very few, if any, nonprofits 
are sufficiently prepared to move quickly to submit a bid 
under the present procedures. 

We are delighted that your committee has taken the lead 
in examining the section 8 program more carefully. 24 

Recommendations 

Section 8 can become a viable force in housing older Americans, 
but this will require considerable flexibility and creativity on the part 
of HUD and all other interested parties from the public and private 
sectors. 

In order to make the program work, the following recommendations 
should be implemented : 

First. A task force should be created, composed of HUD officials 
and staff, developers, builders, representatives of the building indus- 
try, nonprofit sponsors, Farmers Home Administration staff, state 
HFA's, the financial community and elderly advocate groups to re- 
view, evaluate and ultimately improve section 8. 

Second. The present 60-day limitation of the subsidy on unoccupied 
section 8 units should be extended to cover only the debt service 
(principal and interest) accruing to that particular unit. The present 
60-day limitation of the subsidy on unoccupied units does not provide 
sufficient incentive or security to the lender. 

Third. A program of coinsurance should be developed which would 
include state HFA's and private interests as well as the Federal Gov- 
ernment. At the very least, the present 20-percent limitation on coin- 
surance, as defined in section 244 of the Housing and Community 
Development Act of 1974, should be removed. 
^ Fourth. Consideration should be given to the further implementa- 
tion of the Federal guarantees outlined in section 802 of the Housing 
and Community Development Act of 1974, and to the formulation of 
new guarantees which would encourage lending agencies while holding 
Federal exposure to risk and expense to a minimum. 

Fifth. The term of the housing assistance payments contract should 
be extended from 20 to 40 years for private and nonprofit developers. 

24 Letter to Hon. Edward R. Roybal from Andrew H. Mott, vice president, Center for 
Community Change, Dec. 11, 1975. 



13 

This longer term is already permitted for projects owned by, financed, 
or guaranteed by State FHA's. The present regulations put the private 
and nonprofit developers at a serious disadvantage in attempting to 
obtain financing as most mortgages run for -iO years. 

Sixth. A memorandum of understanding should be prepared jointly 
and signed by HUD and FmHA, outlining the respective obligations 
and responsibilities of each in an effort to combine the section 8 and 
section 515 programs. In addition to providing a means of financing 
new rural housing by a blending of the two programs, such a merger 
might well reduce the amount of administrative detail involved. This 
could be accomplished by HUD setting aside a number of section 8 
units to be administered by FmHA in rural areas. FmHA, being 
closer to the scene than HUD regional or area offices, could more 
easily process applications and conduct inspections of units under 
construction or completed. 

Seventh. Congress should insure that the Secretary of Labor imple- 
ment the Davis-Bacon Act more realistically and equitably so as to 
reflect actual wages prevailing in the immediate area of the project 
involved. 

Eighth. A reevaluation of fair market rentals should be undertaken. 
The ceilings established in some areas have made existing housing un- 
available to older people in need and have discouraged developers of 
new units, who fear that the FMK will not be sufficient to support 
the projects 7 operating costs and debt service. 

Ninth. Congress should hold HUD responsible for informing Con- 
gress of the specific remedies it plans to effect to render the section 
8 program more operable. 

Tenth. Congress should insist on the development of a more current 
and complete reporting system within HUD so that it can more effec- 
tively monitor the section 8 program. Until very recently it has been 
virtually impossible to receive any statistical data on the status of the 
program from anyone in HUD, and the data presently available is in- 
complete. 

The great need for the section 8 program is manifested by the ap- 
plications already received for 207,057 units ; the ineffectiveness of the 
present program is indicated by the 279 units completed, 249 of which 
were initiated under another program. 

Congress, therefore, has a responsibility to lower-income older 
Americans in search of decent, safe, and sanitary housing. It can 
best discharge this responsibility by closely monitoring the section 
8 program and insisting that changes be effected in the administration 
of the program which will result in the delivery of reasonably priced 
decent housing to the elderly poor. 

The section 8 program, as it is now structured and administered, is 
not working. HUD and Congress have a joint responsibility to make 
it work. If HUD officials cannot, through the means suggested in this 
report and by whatever other means they may develop working 
together with other interested parties, effect the necessary changes in 
the regulations and administration of the program, then Congress 
must bring about those changes through legislative action. 



14 

SECTION 202 : HOUSING FOE THE ELDEELY AND 
HANDICAPPED 

Background 

The Housing Act of 1959 enacted a program that promoted the de- 
velopment of housing for the elderly. Section 202 provided direct 
3 -percent Federal loans to nonprofit sponsors to provide rental housing 
for the elderly, through new construction or rehabilitation of exist- 
ing structures. In addition, the property could include dining halls, 
community rooms, infirmaries, and other essential service facilities. 

A loan term could not be more than 50 years, nor could it exceed 98 
percent of the total development cost "and the interest rate was limited 
to the higher of 2% percent or a rate derived by adding 14 of 1 per- 
cent to the average annual interest rate on all interest bearing obliga- 
tions forming a part of the Federal debt." 25 

This program was very successful, producing more than 45,000 units 
with only one foreclosure in a 10-year period. The program, however, 
was phased out by administration decision in 1969 because the ad- 
ministration felt that the requirement of direct appropriations for 
the full amount of the loan was having an adverse effect on the Federal 
Budget. 

Second, the administration felt the section 236 26 subsidy program 
could effectively replace section 202. Section 236 was frozen by the 
housing moratorium of January 1973. From that date until the Sum- 
mer of 1975, there was no viable program to assist nonprofit sponsors 
in developing housing for the elderly. 

Section 202's Eeinstatemext 

The 1974 Housing and Community Development Act revived the 
section 202 program when it was signed into law in August of 1974. In 
the fall of the same year, Congress passed a Supplemental Appropria- 
tions Act approving a borrowing level of $215 million for the 202 pro- 
gram in fiscal year 1975. 

HUD delayed the issuance of implementing regulations for approx- 
imately a year. When the final regulations were issued on August 20, 
1975, they did not provide for permanent financing and, as such, vio- 
lated the intent of Congress. Further, they did not establish a work- 
able program. Due to this delay, the appropriation was not utilized, 
and, because it did not have a carryover provision, the administra- 
tion's action in effect resulted in an impoundment without congres- 
sional approval. 

The General Accounting Office (GAO) considered this a violation 
of the Congressional Budget and Impoundment Control Act. It sug- 
gested that Congress set the fiscal year 1976 loan level at a high 
amount to absorb the $215 million. 

Congress, in its HUD-Independent Agencies Appropriation Act. 
fiscal year 1976, stipulated that permanent long-term financing be 

25 See pp. 206-207 of the report, "Evolution of Role of the Federal Government in 
Housing and Communitv Development — A Chronology of Legislative and Selected Execu- 
tive Actions, 1892-1974," prepared by the Subcommittee on Housing and Community 
Development of the House Committee on Banking, Currency and Housing, Oct. 17, 1975. 

26 Under the 236 program payments were made to the mortgagee to reduce the rents 
required by interest costs on a market rate FHA-insured project mortgage. To qualify, 
the mortgagor must be a nonprofit organization, a cooperative, or a limited-dividend 
individual entity. 



15 

provided to nonprofit sponsors. The bill authorizing a borrowing level 
of $375 million was signed on October IT, 1975. HUD's August 20, 
1075, regulations limited 202 loans to construction financing only. In 
addition, on September 24, 1975, a HUD invitation was published in 
the Federal Eegister requesting applications for section 202. In ac- 
cordance with the act, HUD however issued new proposed regulations 
to provide a program of both construction and long-term financing for 
section 202 projects. Final regulations were published February 25, 
1976. 

Purpose and Eligibility 

The purpose of section 202 of the Housing Act of 1959, as amended 
by the Housing and Community Development Act of 1974, is to pro- 
vide direct Federal construction and permanent mortgage loans for 
housing projects to serve elderly and handicapped families and indi- 
viduals. The housing projects should provide a wide range of neces- 
sary services including health, continuing education, welfare, infor- 
mational, recreational, homemaker, counseling, and referral services, 
as well as transportation where necessary. 

Only private nonprofit corporations and consumer cooperatives are 
eligible for section 202 loans. No member of the applicant (sponsoring) 
or borrower (mortgagor) corporation may profit either directly or in- 
directly from the project. The borrower may also be the applicant. 

Loans are to be made at an interest rate based upon the average mar- 
ket yield on U.S. obligations with comparable maturity periods, plus 
an allowance to cover administrative costs and probable losses under 
the program, which has been determined to be 1 percent during the 
construction period and one-half percent thereafter. 

An applicant is limited to a maximum of 300 units per invitation 
within a single region. 27 

At the time section 202 funds are approved by HUD for a successful 
applicant, section 8 funds will be set aside separate from section 8 
funds already allocated to the field offices. Participation in the section 
8 program is required and approval of the section 202 construction loan 
is subject to the feasibility of a proposal under the section 8 program. 

Sponsors of section 202 housing will know when to apply for loans 
through the publication of invitations in the Federal Register. The 
Assistant Secretary for Housing Production and Mortgage Credit, 
HUD, will from time to time as funds become available, issue invita- 
tions for requests by applicants to receive reservations of section 202 
loan authority. The first such advertising occurred on September 16, 
1075, and sponsors had until December 15, 1975, to submit applications. 

Funding Requirements 

fund reservation request 

In order to qualify, an applicant must submit a number of data. Six 
items, however, are the most important. First, the applicant must pro- 
vide evidence of prior housing experience. It must demonstrate its 
capacity to earn' through to completion a project for housing and re- 

27 There are 10 standard Federal regions, with regional offices located in : Region I — 
Boston, Mass. ; II — New York, N.Y. ; III — Philadelphia, Pa. ; IV — Atlanta, Ga. ; V — 
Chicago, 111. : VI — Dallas-Fort Worth, Tex. ; VII — Kansas City, Mo. ; VIII — Denver, Colo. : 
IX — San Francisco, Calif. ; and X — Seattle, Wash. 



16 

lated facilities. In addition, evidence of long-term operation of a proj- 
ect, preferably ten years, must be submitted, but information for less 
than 10 years is acceptable if the applicant proves such information is 
not available for the past 10 years. Second, the applicant must provide 
evidence of its financial capability to organize, plan, and complete 
the construction or rehabilitation of a project. Third, the applicant 
must show the capability to sponsor, develop, own, manage or provide 
special services in connection with housing for the elderly or^ handi- 
capped. It should also include any special capability in serving the 
needs of lower income elderly, handicapped, and members of minority 
groups. Fourth, it should indicate the state in which the project or 
projects would be located and whether it would be in a metropolitan or 
nonmetropolitan area, Fifth, it must show by state, the number of units 
to be developed. Finally, the applicant must state the amount of section 
202 loan funds requested to be reserved. If a project has not started 
construction or rehabilitation work within 18 months following the 
issuance of the notice of fund reservations, it will be canceled by HUD. 
A six month extension, however, can be requested and, if justified, it 
will be granted. 

DEVELOPMENT AND SUBMISSION OF PRELIMINARY PROPOSAL 

Upon HUD's approval of the fund reservation request, the applicant 
must contact the appropriate field office to provide it with more de- 
tailed information — for example, location within State, type of hous- 
ing, utilities — to enable the field office to prepare a special section 
202/section 8 Developers' Packet. 

After receiving the Developers' Packet, the applicant must submit 
a preliminary proposal. This preliminary proposal must provide the 
more detailed information requested in the guidelines of the packet. 
It is at this stage that the applicant must : 

First : Identify the proposed site, including a map showing the loca- 
tion, sketch of site plan, dimensions, and zoning. 

Second : Show evidence that he has effective control of the site or 
property to be rehabilitated. 

Third : Describe the project including the number and type of struc- 
tures, number of stories, number of units, special amenities, et cetera. 

Fourth : State the rent per unit. 

Fifth : Provide a description of the equipment to be included in the 
contract rent. 

Sixth : Furnish a description of the utilities and services to be in- 
cluded in the contract rent, as well as those not included, and an esti- 
mate of the average month!}' cost to the occupant during the first year 
for those items not included. 

Seventh : Provide a statement identifying the borrower and devel- 
oper and,, if known, the builder and architect, including the qualifica- 
tions and experience of each; the names of officials and principal 
members, and shareholders and investors, if any, and any other parties 
having substantial interest, and the previous participation of each of 
the preceding individuals in HUD programs. 

Eighth: Provide a statement indicating whether the project will 
displace site occupants. If so, a feasible plan for relocation should be 
included. 



17 

Once the preliminary proposal is developed, it must be submitted 
to the field office. This office will then review the proposal to deter- 
mine that it is complete and eligible for further processing. The 
proposal must have included all the information discussed in the 
preceding paragraph plus all the other elements required in the 
developers' packet. In case a preliminary proposal is found deficient, 
the field office will give the applicant a reasonable time to correct it. 

After the field office is satisfied that the preliminary proposal is 
satisfactory and if it is subject to A-95 28 clearance, a copy of the 
proposal is sent to the appropriate clearinghouse for review. The 
clearinghouse is given 34 days from the date of the letter transmitting 
the proposal to respond. Ten days after the field office approves the 
preliminary proposal, it must submit a copy of it to the chief executive 
officer of the local unit of government where the project is to be located. 
The chief executive is invited to respond within 30 days from the date 
the copy of the proposal is received. 

The field office then begins its evaluation of the preliminary pro- 
posal. The proposal will be evaluated on the basis of all the infor- 
mation requested by the developers' packet including the comments 
from the A-95 clearinghouse and the local unit of government. If the 
preliminary proposal meets HUD's approval, the applicant will be 
notified and requested to submit a final proposal. 

FIXAL PROPOSAL 

Upon the submission of the final proposal, the applicant must sub- 
mit a request for section 202 direct loan financing. This is done on 
forms prescribed by the HUD field office serving the area in which 
the project will be located. The main element that the applicant must 
provide is evidence that it has the legal authority to finance, construct, 
or rehabilitate and maintain the project. In addition, it must prove 
that it meets the requirement as to corporate organization and that it 
has the authority to enter into contract obligations and execute secu- 
rity instruments as HUD may require. 

The HUD field office will review the financing request and the 
information requested in the developers' packet. The field office will 
then approve or disapprove. If the request is disapproved, the appli- 
cant is given time to correct the deficiencies. 

Once the request for financing is approved, the applicant must meet 
certain requirements prior to the initial disbursement of the loan. 

The following are some of the major documents that may have to 
be provided to the field office: 

First: An agreement to enter into housing assistance payments 
contract. 

Second : A certification of incorporation of the nonprofit borrowers, 
or consumer cooperative, as required by applicable State or local law. 

Third: A mortgagors attornev's opinion regarding the validity and 
legality of the mortgagor permit, the legality of the building permit, 
and compliance with applicable zoning laws and requirements. 

Fourth: Title evidence that the mortgage constitutes a first lien on 
the property, as of the date the mortgage is filed for record. 

28 In this case, the clearinghouse is the local housing authority which reviews the plans 
to insnrp A— 95 compliance. A-95 is a Federal rponirement that ^ronosed projects must fall 
within the developmental scheme and will not have an adverse impact on the environment. 



18 

Fifth : A construction or substantial rehabilitation contract between 
the borrower and general contractor. 

When these requirements are met, the disbursements of the loan 
funds will be made directly to the borrower by HUD. They can be 
made, however, through an approved lender, mortgage servicer, title 
insurance company, or other agents satisfactory to the borrower and 
HUD. Disbursements will be made on a periodic basis not to exceed 
HUD-approved portion of work completed and in place, less retainage. 

COMPLETION OF THE PROJECT 

Upon completion of the project, the applicant (borrower) in its final 
requisition for loan funds must submit to the field office the following : 

First : A borrower's/mortgagors certificate showing the actual costs 
to the mortgagor of the cost plus construction contract, including 
builder's fee actually paid and approved by HUD, architectural, legal, 
organizational, offsite costs and other items of expenses approved by 
the field office. 

Second: A verification of the certificate of actual cost of an inde- 
pendent certified public accountant or independent public accountant 
in a manner acceptable to HUD. 

Third : A certification of the general contractor as to actual costs 
paid for labor, materials, and subcontract work under the general 
contract. 

ALLOCATIONS 

As previously stated, HUD was authorized to lend up to $375 
million in fiscal year 1976 to sponsors for the construction or substan- 
tial rehabilitation of units for the elderly and the handicapped. Spon- 
sors may borrow up to 100 percent of the total development costs of 
their projects directly from HUD through a long-term 40-year loan. 

An invitation to submit applications for these loans was published 
in the Federal Register September 28, 1975, with a December 15 
closing date. Over 1,500 applications for projects were received, re- 
questing the financing of over 230,000 units. 

PRELIMINARY APPLICATION SCREENING 

HUD staff has initially screened each application for completeness 
and consistency. The most common obstacle at this stage of review 
has been the lack of previous participation in developing or manag- 
ing housing projects. HUD, however, is permitting nonprofit sponsors 
10 days to correct these deficiencies. Letters of acknowledgement have 
been sent to all applicants. 

In the preliminary screening, HUD sorted out the ineligible appli- 
cants such as public housing authorities and cities. This preliminary 
screening resulted in tentative allocations. The following tables show 
the number of applicants and units requested by States within regions 
and HUD's tentative allocation of section 202 projects. 29 Final allo- 
cations to sponsors will probably be made by mid-April 1976, follow- 
ing further evaluations. 



88 Spo p. 207 of the information bulletin. "Section 202 Loans for Housing for the 
Elderly and Handicapped," prepared by Housing Production and Mortgage Credit, U.S. 
Department of Housing and Urban Development, January 1976. 



19 



TABLE I 

Regional and State Applications and Units 
(Estimated) 



Region I 
Connecticut 
Maine 

Massachusetts 
New Hampshire 
Rhode Island 
Vermont 

Total 



No. of 
Applications 



19 
7 

72 
5 

11 
3 



117 



No. of 
Units 



3,175 
1,288 
9,403 

S90 
1,441 

102 

15,999 



30 



Region II 
New Jersey- 
New York 
Puerto Rico 

Total 



82 

168 

6 

256 



13,039 

26,233 

1,394 

40,666 



Region III 
Delaware 
Washington, D.C. 
Maryland 
Pennsylvania 
Virginia 
West Virginia 



3 

9 

24 

7S 

26 

9 



687 

1,540 

3,843 

12,306 

3,947 

986 



Total 



146 



23,309 



Region IV 
Alabama 
Florida 
Georgia 
Kentucky 
Mississippi 
North Carolina 
South Carolina 
Tennessee 

Total 



20 
63 
32 
15 
11 
23 
6 
29 

199 



3 f 250 
12,013 
5,073 
1,640 
1,505 
3,201 
742 



;2,49: 



•^HUD's addition in this column is incorrect. Even after discussing the 
figures with Joe Ventrone, Housing Production and Mortgage Credit, HUD's additional 
total was incorrect. The Subcommittee has taken the liberty of correcting HUD's 
figures . 



20 



Region V 
Illinois 
Indiana 
Michigan 
Minnesota 
Ohio 
Wisconsin 

Total 



Total 



No. of 


No. of 


Applications 


Units 


69 


11,386 


21 


2,901 


59 


9,851 


26 


2,920 


85 


15,158 


30 


3,015 



290 45,231 



Region VI . 

Arkansas 10 1,674 

Louisiana 26 3,818 

New Mexico 13 1,574 

Oklahoma 16 2,380 

Texas _49 8,793 

Total 114 18,239 



Region VII 

Iowa 12 1,185 

Kansas 11 1,104 

Missouri 37 6,255 

Nebraska 19 1,710 

Total 79 10,254 

Region VIII 

Colorado 19 3,258 

Montana 11 1,413 

North Dakota 6 871 

South Dakota 7 703 

Utah 8 782 

Wyoming _6 363 

Total 57 7,390 



Region IX 

Arizona . 22 2,895 

California 161 25,748 

Hawaii 8 1,485 

Nevada 5 650 

Guam 1 50 



197" 30,828 



Region X 

Alaska 3 228 

Idaho 5 522 

Oregon 22 2,098 

Washington 42 5,215 

Total 72 8,063 



21 





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22 

Criteria for Allocations 

The section 202/8 allocations were made in accordance with section 
213 of the Housing and Community Development Act of 1974, based 
upon a fair-share-needs formula. This fair-share system used calcula- 
tions of national percentages of numbers of : 

(1) Households with head or spouse age 62 or older ; 

(2) Such households which lacked one or more plumbing facilities: 

(3) Such households with incomes less than the regionally adjusted 
poverty level ; and 

(4) Adjustment by average cost factors within a loan region for 
production of prototype costs for public housing units. 31 

Evaluation Committee 

After the initial screening and all deficiencies have been corrected 
by the applicants, a HUD Central Office evaluation committee, com- 
posed of representatives of Housing Production and Mortgage Credit 
Housing Management, and the Office of General Counsel, will review 
the applications. Each private nonprofit applicant will be evaluated 
in terms of his/her capacity and experience to construct and manage 
elderly and handicapped projects. Specifically the evaluation commit- 
tee will consider the following : 

First : The applicants' capacity and ability to carry through to com- 
pletion and to successful long-term operation a project for housing 
and related facilities. 

Second : The overall financial capacity, including the financial his- 
tory and stability of the applicant group. 

Third : Evidence of sufficient working capital. 

Fourth : Evidence of management capability and expertise. 

Fifth: Special capabilities to provide services to the elderly and 
handicapped. 

Sixth : Previous participation, experience, and qualifications of the 
applicant. 

The evaluation committee's recommendations will be forwarded to 
the official select committee for committee final determination. 32 

Formal Selection Committee 

The official selection committee should convene at a meeting with 
the secretary sometime near the end of February 1976. The committee 
will take approximately a week to analyze the evaluations committee 
recommendations and to make the final selection. The selection com- 
mittee will be comprised of three regional administrators ; the Office 
of Equal Opportunity; the deputy assistant secretary for manage- 
ment; director, Office of Policy and Program Analysis; assistant to 
the secretary for Problems of the Elderly and Handicapped, Office of 
the General Counsel, and the assistant to the assistant secretary for 
Housing Production and Mortgage Credit. 33 



31 See "Section 202 for Loans for Housing for the Elderly and Handicapped." supra at 4. 

32 See "Section 202 for Loans for Housing for the Elderly and Handicapped," supra at at- 
tachment C 

33 See p. 2 of the Ad Hoe's Coalition for Housing for the Elderly, "Summary of Jan. 5, 
197G, Meeting," Jan. 14, 1976. 



23 

HUD anticipates that fund reservation approvals will be announced 
on or about April 15, 1976. HUD will retain on file a reserve group of 
the most highly ranked 100 applications which did not receive initial 
fluid reservation for future consideration in case selected applicants 
fail to reach section 8 processing approval stage in the field office or 
subsequent future loan authority is made available. 

Evaluation and Findings 

Presently, the section 202 program is at the startup stages. How- 
ever, it can easily be projected that the $375 million will only fund 
11,000 to 14,000 units. 

Since the program has just been initiated, it is impossible to evalu- 
ate its response in meeting the housing needs of the elderly. At this 
stage, however, a number of observations can be made and by draw- 
ing upon them, recommendations for improvement of the program 
can be proposed. 

Originally HUD did not follow the congressional mandate of pro- 
viding long-term financing to nonprofit sponsors. In addition, it took 
a year to issue guidelines and implementing regulations. This resulted 
in long delays in implementing a much needed housing program. It 
has taken a year and 10 months to select eligible sponsors. This, of 
course, is just the first stage of the program. It will now take any- 
where from 2 to 3 years before any units are made available to the 
elderly. 

Second, the mechanism that a nonprofit sponsor (applicant) must 
follow to obtain fund reservations is too complicated and extremely 
bureaucratic. The applicant must go through five stages before receiv- 
ing any funds. The first stage is the submission of an application to be 
used to approve reservations. After approval of the fund reservation, 
the sponsor develops a preliminary proposal, followed by a final pro- 
posal, followed by a written request for direct loan financing and 
finally, followed with the provision of documents before disbursements 
of funds. 

Third, the selection criteria calling for longevity, accumulated con- 
struction and management experience, plus a strong financial capacity, 
tends to discriminate against developers who at the present time may 
have the expertise and resources to develop section 202 housing but do 
not have a proven track record. This, of course, discriminates against 
minority sponsors who have not had the opportunity to accumulate 
the experience HUD is requiring. 

Fourth, the allocation for fiscal year 1976 does not begin to meet 
the need or demand. The elderly population continues to grow at a 
faster rate than the general population. In 1970, 1 in every 10 persons 
was over 65 — approximately 20.1 million elderly people. At this rate, 
in 30 years there will be 30 million elderly persons in this country, 
out of a population of 310 million. 34 Therefore, more housing units 
for the elderly are needed and the need will continue to grow. The 
White House Conference in 1971 qualified this need by calling for 
120,000 new units a year. This goal has never been reached nor even 
approached. 



s* "The On-Site Housing Managers Resources Book — Housing for the Elderly," supra 
at 2-1. 



24 

HUD received 1,500 applications in a 3-month period ending De- 
cember 15, 1975, requesting financing for 230,000 units. The total cost 
for these units is well over $6 billion. 

The $375 million allocated for fiscal year 1976 will only allow 80 to 
100 of the 1,500 applications to be funded. They will in turn only 
develop 11,000 to 14,000 units. There is, however, an additional com- 
plication. The Cooperative Services, Incorporated (CSI) of Michi- 
gan in 1974 filed a lawsuit that challenged the fiscal year 1975 im- 
poundment of the funds. The Federal District Court for the District 
of Columbia ruled on January 16, 1976, that the impoundment was 
unlawful and ordered that the withheld section 202 funds be made 
available to CSI. The funds subject to the Court order total $115 mil- 
lion and are part of $375 million in the fiscal year 1976 appropria- 
tions bill. HUD has appealed the decision ; thus the matter will be in 
abeyance for a few months. If the decision is not reversed, the ques- 
tion of where the funds will come from remains. They could pos- 
sibly have to be taken from the fiscal year 1976 $375 million. It is 
clear that section 202 funding is extremely inadequate and will not 
meet the housing needs of the elderly. 

Recommendations 

In order to improve the section 202 program and HUD's response 
to the needs of older Americans : 

First. Congress should stipulate that a Federal agency must de- 
velop and publish guidelines and implementing regulations within 90 
days after the passage of a public law. 

Second. HUD should streamline the section 202 funding applica- 
tion process. 

This would speed the processing of applications, and would provide 
a more equitable method for screening and evaluating applications. 
The initial application could be combined with the preliminary pro- 
posal, i.e., instead of submitting an application to obtain reserva- 
tion approval, the preliminary proposal should be required as the 
application. This action would not only reduce the time element 
involved, but would provide HUD with more data to realistically 
evaluate the applicant. 

Third. The interest rates for the long-term section 202 loan should 
be lowered. 

This could be done by providing for an interest rate based upon 
the average interest rate of all Treasury obligations, or by determin- 
ing a guaranteed fixed percentage. 

Fourth. Finally, and most importantl}', Congress needs to provide 
more funds for section 202. 

The fiscal year 1977 appropriations for section 202 should be sub- 
stantially increased over prior allocations. In addition, Congress 
should pass a new authorization for section 202 to increase the aggre- 
gate level up to $2.5 billion in fiscal year 1977 and the years there- 
after. 



ADDITIONAL COMMENTS BY REPRESENTATIVE 
DON BONKER (3d Disk, Wash.) 

The subcommittee's report, "Elderly Housing Overview: HUD's 
Inaction," is timely and its recommendations deserve serious attention. 
What I find so disheartening is*that we see evidence of urgent and 
desperate need of housing for our senior citizens, yet bureaucratic 
delays and inefficiency prevent this program from helping those in 
need. 

For example, in my district, the city of Longview is an old farming 
town which is becoming a suburb. Today it has a dearth of decent 
housing available to the elderly. Let me quote from one letter I 
received : 

One particular segment of the public in Cowlitz County 
that is suffering from a lack of decent housing are the low- 
income elderly. There are a significant number of citizens 
residing in and around Longview, who retired from the wood 
products industry prior to the era of substantial union pen- 
sions. These folks rely primarily on social security for their 
subsistence and are unfortunately relegated into the category 
of the low-income elderly. 

A desperate need exists for housing for the low-income 
elderly presently located in and around the Longview area. I 
have attended meetings of local builders and developers who 
have repeatedly stated that they could not afford to build 
housing for the geriatric category and, in fact, encouraged 
any nonprofit agency capable of obtaining financing to build 
such facilities, which would not present any competition to 
them for the more affluent tenants. 

Also in my district, Mason County has 25.6 percent of its housing 
in substandard condition. Another constituent explains : 

"Together with the economic problems of matching fixed incomes 
to rapidly rising housing costs, our elderly persons are facing an acute 
shortage of safe and sanitary housing facilities." 

Our senior citizens need and deserve decent housing, and they should 
not be forced to wait out bureaucratic delays in substandard housing 
which can only contribute to their discomfort and disillusionment. We 
have an obligation to do everything in our power as a committee to 
expedite the housing programs and see that Congress' will is not 
thwarted. 

Congress made its commitment to senior citizens, and appropriated 
funds for creation of better housing. This report documents HUD's 
delay in implementing the will of Congress and that raises serious 
questions about the administration's concern for senior citizens. Con- 
gress' intent is unequivocal, and we hope that HUD will not delay 
awarding grants so that construction of section 202 projects will begin. 

Don Boxker. 
(25) 

O 



UNIVERSITY OF FLORIDA 



3 1262 09113 0673